Distress Signals From HMV

A 14 percent drop in Christmas sales has multiplied problems for an ailing HMV, which announced it will shutter 60 shops within a year and may struggle to meet its bank covenants.

The UK-based music, films, books and games retailer with interests in venues, festivals and artist management warned full-year profit would be at the lower end of analysts’ estimates and that meeting a test of its lending rules in April would be tight.

Within an hour of the London stock exchange opening Jan. 5, the 360-degree music company’s share price – which had already lost two-thirds of its value in 2010 – tumbled a further 24.6 percent to 24.5 pence.

The company has been under fire during a White Christmas that many analysts predicted would leave some retailers in the red. The severe winter weather in the UK deterred shoppers already worried about rising taxes and public spending cuts.

HMV said illegal downloading and competition from supermarkets have also driven sales down.

During the last two weeks of 2010 analysts began slashing their profit forecasts for the company and said HMV chief exec Simon Fox needed to curb his 360-degree strategy and find a “Plan B” or risk the group having to be broken up.

HMV’s drop in sales has been heavier than that of most retailers but the whole sector looks to have caught a cold during the UK’s big December freeze. Temperatures were lower than any recorded in the last 100 years.

The company may have hoped to have done better after competitors including Borders UK, Woolworths, and Zavvi have all collapsed in the last two years.

Next, Britain’s No. 2 fashion chain behind Marks & Spencer, is another to be feeling the chill. It said end of year sales at shops that have been open for at least 12 months were 6.1 percent down on last year.

It estimated it lost £22 million ($34 million) in sales as a result of the snow that swept across northern Europe. However, sales at its Directory home shopping business rose 8.7 percent.